Mortgage Rates Hit Six Month Low

Mortgage rates fell again this week, hitting a six-month low as investors reacted to weak economic news in the U.S. and to reports that the European Central Bank may ease monetary policy.

The 30-year fixed-rate mortgage fell 4 basis points to 4.33 percent. A basis point is one-hundredth of 1 percent.

The 15-year fixed-rate mortgage fell 3 basis points to 3.42 percent. The average rate for a 30-year jumbo mortgage fell 4 basis points to 4.35 percent. A jumbo mortgage is generally a loan of more than $417,000.

The 5/1 adjustable-rate mortgage fell 3 basis points to 3.31 percent. With a 5/1 ARM, the rate is fixed for five years and adjusted annually thereafter.

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Four Common Tax Deductions For Homeowners

During income tax season, many American homeowners will qualify for one or more tax deductions based on their real estate holdings. For some, the deductions can result in thousands of dollars in savings. Following is a quick list of four common tax deductions for U.S. homeowners.

1. Mortgage interest deduction: The mortgage interest deduction allows homeowners to deduct all mortgage interest payments. For many, interest payments comprise the vast majority of the first few years of mortgage payments, which can significantly reduce one’s tax liability. Every year, Americans save over $100 million by itemizing their mortgage interest deduction, which makes it one of the most compelling reasons for purchasing instead of renting a home.

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2. Private Mortgage Insurance deduction: In general, homeowners who submit smaller down payments (20 percent or less of the sale price) must pay for Private Mortgage Insurance (PMI). For many homeowners, PMI can represent a significant portion of their monthly mortgage payment. To qualify for this deduction, mortgages must have originated in 2007 or later.

3. Mortgage points deduction: Also referred to as the mortgage origination deduction, the mortgage points deduction allows homeowners to deduct the points they paid on the purchase or refinance of their home. To utilize the deduction, homebuyers must deduct all of the points they paid in a particular tax year. On the other hand, homeowners who paid points on a refinance must deduct the points as an amortization throughout the duration of the loan.

4. Home office deduction: One of the most commonly used deductions among self-employed professionals, the home office deduction allows homeowners or renters to deduct a portion of their rent, utilities, and other home-related expenditures. To qualify for the deduction, homeowners must use a portion of their home exclusively for their business endeavors.

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Smart Alternatives To Putting 20 Percent Down

When you started researching what it takes to buy a home, you probably came face-to-face with one number over and over again: 20 percent. Traditionally, that’s how much was needed to buy a home.

These days, there are a number of alternatives to the 20 percent down payment, with some options requiring down payments of 3 to 5 percent, while others offer loans with 0 percent down.

Keep reading to learn more about these alternatives…

Alternative #1 – FHA Loan

If you’re a first-time homebuyer, consider a Federal Housing Administration (FHA) loan. It’s a type of federal assistance loan that allows lower-income Americans to borrow money to purchase a home they could not otherwise afford.

Buyers can get an FHA loan with a down payment as low as 3.5 percent of the purchase price, according to the U.S. Department of Housing and Urban Development.

“The FHA loan is designed to protect buyers from buying more house than they can afford,” says Paula Pant, founder of Afford Anything, a website that helps people reach their financial goals. “It limits buyers to spending no more than 31 percent of their gross monthly income on their total house payment. In other words, it protects buyers against making risky decisions.”

However, Pant says there is one drawback: Buyers will need to pay mortgage insurance as a result of not furnishing a 20 percent down payment.

“The cost of this insurance counts towards the total house payment, which is capped at 31 percent of a buyer’s gross monthly income. So, for example, if they earn $1,000 per month (gross), they can’t pay more than $310 per month towards all mortgage expenses, including the principal, interest, taxes and insurance, including PMI.”

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Alternative #2 – Down Payment Assistance through City and Federal Programs

In many cities, the local or federal government offers assistance programs to revitalize areas hit hard by natural disasters or recessions. In these cases, homeowners are often able to get a helping hand if they know where to look.

“A program called Invest Atlanta, spearheaded by the city of Atlanta, gave me $15,000 toward the purchase of my first home because I was buying a foreclosed home within the Atlanta city limits,” says Lauren Bowling, founder of the personal finance website, L Bee and the Money Tree.

“These city and state programs are out there, but you have to do your research in order to find them. If you have a particularly good mortgage broker that you are working with, they should be able to point you in the right direction.”

Alternative #3 – Get a Veteran Affairs (VA) Loan

“VA loans are granted to military veterans and qualified buyers can get a home loan for no money down,” says Pant.

According to the Department of Veteran Affairs, a VA loan can help you purchase or refinance a home at a low interest rate, and often doesn’t require a down payment. To qualify for this loan, potential homebuyers must meet specific service requirements and have:

• Good credit score • Sufficient income • Certificate of Eligibility (COE)

“As an added bonus, the buyers are not required to pay mortgage insurance. Furthermore, federal regulations limit the amount of closing costs, appraisal costs and loan origination fees, meaning that people who take out VA loans will not have to pay an egregious amount of fees,” adds Pant.

Alternative #4 – Get a USDA Loan

The U.S. Department of Agriculture (USDA) insures low-down-payment loans to low-income borrowers who want to buy houses in rural areas, Pant explains.

“Buyers can qualify for this loan if their income is no greater than 115 percent of the median income for the area. The USDA approves qualified houses based on the location of the home. Buyers can put zero money down, but they are still required to pay mortgage insurance,” she adds.

She adds that loan amounts vary considerably depending on a number of factors, including:

• The part of the country the house is located in • Whether it’s in an “eligible area” • If the income of the family buying the home fits within certain limits relative to the median incomes within that particular area

“The family’s income will determine how large of a loan the family can qualify to receive,” she says. “The USDA limits them from spending more than 29 percent of their income on their mortgage, and they cannot spend more than 41 percent of their income on all debt payments combined, including student loans, credit card minimums, etc.”

Pant says the USDA offers this program in order to assist low-income and moderate-income people who live in rural areas to become homeowners.

“In other words, they’re trying to encourage homeownership.”

Determined to Save 20 Percent? Consider these Tips…

If you still have your mind set on saving a 20 percent down payment, here are some smart ways to get you there faster.

The Bank of Mom and Dad: “While this certainly isn’t a new angle, many parents who can afford to gift are now able to do so,” says Bowling. “And it’s not just parents who can give. In fact, each individual, regardless of relation, can gift up to $14,000 per recipient without triggering a gift tax. So, for example, if my parents wanted to give me and my future spouse a gift, they could each give $28,000 to each of us, for a total of $56,000.”

Tap into your Roth IRA: Bowling says she took $1000 out of her Roth IRA to help pay for the down payment on her house. “Since I can take out up to $10,000 of this money for a home purchase penalty-free, I thought it would be best to use the IRA money for the down payment, and then use my own savings for the repairs and renovation on the home.

Take money out of your 401K: Tapping into your retirement fund to pay off your mortgage is another option to come up with a down payment. However, before going this route, you’ll want to ensure that the rate of return on your mortgage is greater than the return on your 401K investments. Talk to your financial adviser or lender to figure out which option is best for you.

Create Sub-Savings Accounts: Pant says that by making saving more personal, you may find it easier to save. “I’m a huge fan of creating multiple sub-savings accounts and nicknaming each sub-account with your savings goal, such as ‘Our first home’ or ‘Trip to Paris.'”

Here’s how it works: You open one savings account with a bank like SmartyPig. This is technically only one savings account, but the bank’s website allows you to create mini “sub-accounts” underneath it, so instead of mixing all of your money into one giant pool, you can split up your savings between these various sub-accounts. Pant says that you can then nickname each sub-account, which may motivate you to stay on-course.

The above article was written by Andrea Duchon and appeared on Yahoo! Homes.


Mortgage Rate News For 2014

We started off 2013 by carrying over mortgage rates at historic lows.  We saw 30 year fixed rates in the low 3% range*, fueling a refinance wave that lasted nearly a year.  Since mid-May rates have begun to climb, reaching about 4.5%*.  The government shutdown in October had one positive effect: Mortgage rates have tumbled to their lowest level since spring.  The national average this week (January 6, 2014) for a 30-year loan is 4.53%*. Click here to check today’s rates.

While coming off the heels of rates in the low 3% range, a rate in the 4’s might seem high, but rates are still comparatively low.  Back in the mid-2000s the average 30-year fixed rate was around 6%*.  The oft-forgotten adjustable rate mortgages are extremely competitive. Freddie Mac’s Chief Economist expects rates to remain relatively stable for the remainder of the year which is good news for buyers going into the spring home-buying season!

*Mortgage rate data obtained from the Freddie Mac Primary Mortgage Market Survey®

Take a look at the path mortgage rates took in 2013 and click on the graphic for more charts and graphs.